One of the most controversial and interesting questions in contemporary Arbitration Law is ‘incorporation by reference’. It is a common practice in some industries, particularly shipping and construction, for the contractual relationship between the parties to be composed of several documents. It sometimes happens, a dispute arises with reference to one of these documents, while the Arbitration Clause is contained in another. Common Law Rules have evolved to ascertain whether the parties intended to incorporate the Arbitration Clause in one document into another, and the normal rule is, general incorporation to the other document does not suffice.
Supreme Court considered this issue in well-reasoned and comprehensive M.R. Engineers and Contractors Private Limited v. Som Datt Builders Limited, (2009) 7 SCC 696, recently quoted copiously in M/s. Dulo Felguera v. M/s. Gangavram Port Limited, [Arbitration Petition No. 30 of 2016] decided on 10.10.2017.
“In Som Datt Builders Limited, (2009) 7 SCC 696 Supreme Court held, even though the contract between the parties does not contain a provision for Arbitration, an Arbitration Clause contained in an independent document will be incorporated into the contract between the parties, by reference, if the reference is such as to make the Arbitration Clause in such document, a part of the contract.”
Justice Raveendran in Som Datt Builders referred to the provisions of Section 7(5) of The Arbitration Act. Court noticed, the words “such as to make that Arbitration part of the contract” meant, mere reference is insufficient. Clearly, Section 7(5) required “conscious acceptance” of the Arbitration Clause, and the Court held, this question would have to be answered in accordance with the normal rules of document construction, in the absence of statutory guidelines.